—13—

33.

These actions together transformed the telephone network from a network whose

use was controlled by one company — AT&T — into a general purpose network, whose ultimate

use was determined by end users. In effect, they imposed a principle analogous to End-to-End

design on the telephone network. Indeed, though it masquerades under a different name (“open

access”), this design principle is part and parcel of recent efforts by Congress and the FCC to

deregulate telephony. The fundamental economic goal of the FCC in deregulating telephony is to

isolate the natural monopoly component of a network — the actual wires — from other

components in which competition can occur. By requiring the natural monopoly component at

the basic network level to be open to competitors at higher levels, intelligent regulation can

minimize the economic disruption caused by that natural monopoly, and permit as much

competition as industry structure will allow.

34.

It is our view that but for these changes brought about by the government, the

Internet as we know it would not have been possible. Without these changes, the trend in

telecommunications was towards more centralized control over the communication network.

Network theorist Robert Fano of MIT, for example, wrote in 1972 that unless there was a change

in the trend in the computer-communications network, existing institutions would further isolate

computer and communications technologies from broad based control.7But by seeding the

development of a network within a different communication paradigm, and then opening the

existing communication network so that it might deploy this different communication paradigm,

the government created the conditions for the innovation that the Internet has realized.

6In the Matter of Use Of The Carterfone Device In Message Toll Telephone Service; Docket No. 16942; 13
F.C.C.2d 420; June 26, 1968.

7See, Robert M. Fano, On The Social Role of Computer Communications, 60 Proceedings of the IEEE, September
1249 (1972).

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35.

This is not to say that the government created the innovation that the Internet has

enjoyed. Nor is it to endorse government, rather than private, development of Internet-related

technologies. Obviously, the extraordinary innovation of the Internet arises from the creativity of

private actors from around the world. Some of these actors work within corporations. Some of

the most important have been associated with the Free Software, and Open Source Software

Movements. And some have been entrepreneurs operating outside of any specific structure. But

the creativity that these innovators have produced would not have been enabled but for the

opening of the communications network. Our only point is that the government had a significant

role in that opening.

36.

We do not claim that no communication network would have been possible

without the government’s intervention. Obviously, we have had telecommunication networks for

over a hundred years; and as computers matured, we no doubt would have had more

sophisticated communication-computer networks. But the design of those networks would not

have been the design of Internet. The design would have been more like the French “equivalent”

to the Internet — miniTel. But miniTel is not the Internet. The miniTel is a corporate,

centralized, controlled version of the Internet. And it is notably less successful.

E.

The Relevance of Legacy Monopolies

37.

As we have said, no one fully understands the dynamics that have made the

innovation of the Internet possible. But we do have some clues. One important element of that

innovation is a structure that disables the power of legacy monopolies to influence the future of a

network design.

38.

By freeing the telecommunications network from the control of one single actor,

the government enabled innovation free from the influences of what one might call “legacy”

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business models. Companies develop core competencies, and most of them tend to stick to what

they know how to do. Companies faced with a potential for radical change in the nature of their

market may recoil, either because they don’t know how to change to face changing conditions, or

because they fear that they will lose the dominance they had in the old market as it becomes a

new playing field. Their business planning is, in short, governed by the legacy of their past

success. These legacy business plans often affect a company’s plans about how to respond to

innovation. In a competitive environment, they will often disadvantage a company that fails to

respond rapidly enough to changed circumstances.

39.

In some markets, companies have no choice but to respond to changed

circumstances. They either change or die. It is a mark of Microsoft’s success, for example, that

its chairman, Bill Gates, succeeded in radically altering the course of the company’s

development, in the face of changed competitive circumstances, despite the fact that such

changes resulted in the termination of projects at other times deemed central to Microsoft’s

future (MSN, for example.). In contrast, for example, commentators attribute Apple’s failure

during the early 1990s to its refusal to give up old models of business success. Legacy models

hindered Apple’s development; the refusal to be captured by legacy models was a key to

Microsoft’s success.

40.

In an environment where a company has power over the competitive environment

itself, however, the rational incentives of a business may be different. If the business, for

example, has control over the architecture of that competitive environment, then it will often

have an incentive to design that architecture to better enable its legacy business models. As

Charles R. Morris and Charles H. Ferguson describe it,